Correlation Between Magic Software and Nordic Semiconductor

Can any of the company-specific risk be diversified away by investing in both Magic Software and Nordic Semiconductor at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Magic Software and Nordic Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Magic Software Enterprises and Nordic Semiconductor ASA, you can compare the effects of market volatilities on Magic Software and Nordic Semiconductor and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Magic Software with a short position of Nordic Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magic Software and Nordic Semiconductor.

Diversification Opportunities for Magic Software and Nordic Semiconductor

0.04

Correlation Coefficient

Magic Software  Nordic Semiconductor

Significant diversification

The 3 months correlation between Magic and Nordic is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Magic Software Enterprises and Nordic Semiconductor ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordic Semiconductor ASA and Magic Software is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Magic Software Enterprises are associated (or correlated) with Nordic Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordic Semiconductor ASA has no effect on the direction of Magic Software i.e., Magic Software and Nordic Semiconductor go up and down completely randomly.

Pair Corralation between Magic Software and Nordic Semiconductor

Assuming the 90 days horizon Magic Software Enterprises is expected to generate 1.42 times more return on investment than Nordic Semiconductor. However, Magic Software is 1.42 times more volatile than Nordic Semiconductor ASA. It trades about 0.14 of its potential returns per unit of risk. Nordic Semiconductor ASA is currently generating about 0.03 per unit of risk. If you would invest  989.00  in Magic Software Enterprises on October 7, 2024 and sell it today you would earn a total of  141.00  from holding Magic Software Enterprises or generate 14.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Magic Software Enterprises  vs.  Nordic Semiconductor ASA

Magic Software Enter

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Magic Software Enterprises are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Magic Software reported solid returns over the last few months and may actually be approaching a breakup point.

Nordic Semiconductor ASA

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nordic Semiconductor ASA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Nordic Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Magic Software and Nordic Semiconductor

The main advantage of trading using opposite Magic Software and Nordic Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magic Software position performs unexpectedly, Nordic Semiconductor can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Nordic Semiconductor will offset losses from the drop in Nordic Semiconductor's long position.

The idea behind Magic Software Enterprises and Nordic Semiconductor ASA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..